Supreme Court Verdict on Electoral Bonds Scheme (2024)

  • Post category:Polity
  • Electoral Bonds Scheme (EBS): Introduced in 2018 (via Finance Act 2017) to allow anonymous political donations through interest-free bearer bonds issued by SBI.
  • Supreme Court Verdict (Feb 2024): A 5-judge Constitution Bench struck down EBS as unconstitutional, holding that it violated the Right to Information (Article 19(1)(a)) and principles of electoral transparency.

How Electoral Bonds Worked

Eligibility

  • Donors: Any Indian citizen or company incorporated in India (foreign entities barred).
  • Political parties: Only those registered under Section 29A of RPA 1951 and securing ≥1% vote share could receive bonds.

Process

  1. Issued by SBI in fixed denominations (₹1,000 to ₹1 crore).
  2. Available for 10 days each quarter, plus extra during elections.
  3. Valid for 15 days; uncashed bonds credited to PM’s Relief Fund.
  4. Purchased via KYC-compliant payments (cheque, DD, online banking).
  5. Encashed only in verified party accounts.

Key Features

  • Anonymity: Donor identity hidden from the public and recipient parties but visible to SBI (and government).
  • Unlimited Donations: Companies could donate any amount (profit cap removed under Companies Act).
  • Tax & Disclosure Changes: Political parties exempted from revealing donor names under Section 29C of RPA 1951.

Supreme Court’s Key Findings

  1. Violation of Right to Information:
    • Citizens must know sources of political funding to make informed electoral choices.
    • Withholding donor information breached Article 19(1)(a).
  2. Lack of Proportionality:
    • Transparency restrictions were excessive compared to the goal of curbing black money.
    • Less intrusive options (e.g., mandatory disclosure) were available.
  3. Unrestricted Corporate Donations:
    • Removing the 7.5% profit cap enabled shell companies and loss-making firms to funnel money to politics.
    • Created risks of quid pro quo and corporate lobbying.
  4. Information Asymmetry:
    • Government access to donor data via SBI created an unfair advantage over opposition parties.
  5. Conflict with Existing Laws:
    • Contradicted the RPA 1951 requirement for disclosure of donations above ₹20,000.

Implications of the Verdict

Positive Impacts

  • Enhanced transparency: Mandatory disclosure of all political donations.
  • Reduced corporate influence: Prevents unchecked funding and policy capture.
  • Restored electoral integrity: Strengthens public trust in elections.

Concerns

  • Return of cash donations: Risk of reverting to untraceable funding methods.
  • Alternative opaque channels: Parties may seek foreign routes, intermediaries, or unregulated digital funding.

Way Forward for Political Funding in India

  1. State Funding of Elections: As proposed by the Indrajit Gupta Committee (1998).
  2. National Electoral Fund: Donations pooled and distributed based on vote share.
  3. Caps on Anonymous Donations: Limit total anonymous contributions (as suggested by Law Commission).
  4. Ban or Regulate Cash Donations: To ensure traceability.
  5. Corporate Transparency: Mandatory disclosure of party-wise donations in company accounts.
  6. Auditing Political Parties: Independent audits as per Venkatachaliah Committee (2002).
  7. Adopt Global Best Practices:
    • USA: Full disclosure of donations above $200.
    • UK: Donations above £7,500 reported publicly.
    • France/Brazil/Chile: Corporate donations banned to prevent lobbying and corruption.

Conclusion

  • The Supreme Court judgment dismantled the Electoral Bonds Scheme, reinforcing citizens’ right to know and ensuring fairer elections.
  • While transparency will improve, policymakers must address the risk of unregulated cash funding and design new mechanisms for clean electoral finance.